Germany blames Ukraine crisis for unexpected slowdown

The sudden contraction of the German economy in the second quarter could be caused by Russian sanctions and the erosion of confidence from the crisis in Ukraine, the German Finance Ministry said on Friday.

A 0.2 percent shrink in
Europe’s strongest economy between April and June came after
modest growth of 0.7 percent in the first quarter. The first
quarter was mostly driven by an unusually warm winter, which
stimulated construction activity.

The ministry considers the main hindrances to the economy are
“the effect ofsanctions, and negative effects on
confidence due to the Ukraine crisis,” which have likely
resulted in the decline of industrial activity in the second
quarter.

Among other reasons listed is "weaker economic development in
the eurozone“ and ”other geopolitical tensions.”
Moreover, the investment in construction and foreign trade had
weighed on growth in the second quarter.

Germany is sticking to its forecast to grow by 1.8 percent this
year even after its disappointing second quarter, Rainer
Sontowski, German State Secretary for Economics, said on
Wednesday.

"If the Ukraine crisis does not escalate further and no
further serious stages of sanctions is imposed, it is to be
expected that the current economic slowdown is only
temporary," the ministry statement said.